China’s economy, since the late 1970s, has been often compared to a giant roller-coaster ride with many dips, swings and rises as it rapidly moves towards greater global prominence. Two major political engines, during this extraordinary period of growth, play a joint role in regional and local development: state-owned enterprises (SOEs) and Township & Village Enterprises.
The first was created by the CCP leadership in 1980. Under the authority of the powerful State Council, this large conglomeration of government assets, in the form of light industries and public service, operated mainly in major cities. These large state corporations, while many and diverse, were run by a small group of powerful business cronies who enjoyed little competition and lots of favour from regional governors. Long regarded as heavily subsidized, poorly managed, top-down operations, SOEs gradually became, in the 1990s, unprofitable and corrupt, to the point of being sold off or greatly reduced in size. This resulted in a decade of rising unemployment and declining productivity.
The second one was formed in the early 1980s, by Chairman Deng, as a follow through on agrarian reform. Beijing decided that it was time to not only dismantle collectivization, by freeing up land for millions of peasants but also encourage local hamlets to establish private businesses. These initiatives were so successful that there was a major increase in the living standards for these two sectors. Ironically, some of this was helped by engineers on loan from SOEs from places like Shanghai. Reformers especially liked the outcomes because they required lower costs to realize. However, interest in local light industry waned by 1996, due mainly to the PSC seeking a different direction to boosting the economy.
In the late nineties, a new set of reforms came to bear on China’s struggling economy. Chairman Jiang Zemin finally gained control of the PSC agenda, and proceeded to move the country towards a form of vigorous capitalism that entailed strong central control over an expanding export market. The new targets were an emerging middle class and big foreign markets like the United States. This plan required the banking sector to invest large amounts of new money in SOEs in the hope they would meet pent-up demand for durable goods. While many SOEs and some TVEs were heavily funded by the Central Bank, to the tune of 4 trillion rbm during the 2008 meltdown, the more efficient private ones got axed for political reasons. Programs like the Coastal Development Strategy were not geared to allow the smaller TVEs to compete in the very lucrative export market, because the power of regional big money prevailed.
Since the outset of the 21st century, the CCP has chosen to pin its hopes on the SOEs as the exclusive public engine for producing greater and more sustainable wealth across the country. While these companies collectively hold over 26 trillion dollars in assets, with unlimited access to bank funds, they remain ever vulnerable to corruption and waste. To fight this, Beijing, as of 2003, created the SASAC (State-Owned Assets Supervision and Administration). It was critical that these entities first had the confidence of Chinese investors before trading on foreign exchanges. Any mention of TVEs by this time was largely a footnote to an earlier time when global trade was just starting to notice China.